“Have had bad times in Brazil”

“We have raised more than three billion dollars in equity, so we are now in a very good financial position,” says Vélez in an interview with the Handelsblatt. The fresh money opens up new opportunities for the digital bank in the current market environment. “In addition to our goal of growing organically, we are also looking around for potential acquisitions,” emphasizes the CEO.

Some takeover options that the bank saw six to eight months ago are now being offered at a 70 percent discount. “We are convinced that there will be some opportunities for the company,” emphasizes the manager.

A turnaround in interest rates, high inflation and the economic consequences of the war in Ukraine are depressing market sentiment. There are hardly any IPOs at the moment, and tech stocks have been under massive pressure for months. If Nubank weren’t already public, Vélez would be worried. Concerns about being able to raise capital in the market at all. There are currently not many investors who want to invest, he says.

This also applies to fintechs that have been founded for a number of years and are now in the late phase condition. According to the latest figures from the Crunchbase database, investors invested around 23 percent less in European start-ups at this growth stage in the second quarter of this year compared to the same period last year.

Competition from N26

Vélez founded the neobank in 2013 together with Cristina Junqueira and Edward Wible. The company started with a free credit card. Today, the institute offers other banking services via app, such as securities trading. According to Nubank, it currently has almost 60 million customers in its three markets of Brazil, Colombia and Mexico.

The neobank was thus able to almost double the number of customers within 18 months, with around 96 percent of the customers coming from Brazil. At the end of 2020, Nubank still had about 33 million customers.

However, the institute is not profitable. The Neobank is in Brazil Vélez says he is close to breaking even, but wants to reinvest free funds in further growth, especially in Colombia and Mexico. The net loss in the first quarter of this year was $45.1 million after $49.4 million in the same quarter last year. Revenue tripled to $877.2 million in the first three months compared to the same period last year.

For all of 2020, revenue was $737 million, up from a total of $1.7 billion last year. However, net losses totaled $165 million in 2021, down from $172 million in 2020.

“We will continue to focus on these three markets,” emphasizes Vélez. Because even there, the Nubank would still be in the early stages. In Brazil, the institute says it has a market share of around eleven percent with the credit card, the fintech’s most widespread product, and around two percent for personal loans.

In the future, however, Nubank will face competition from Germany in its home market. The Berlin smartphone bank N26 wants to take off in Brazil – after more than three years of preparation. At the beginning of 2019, the Berlin fintech announced that it would be entering the market as the “next logical step in the expansion strategy”.

Now the plans are apparently being pushed. N26 wants to create hundreds of new jobs in São Paulo by the end of the year. An N26 spokeswoman explained that the smartphone bank in Brazil is currently in an extended test phase. According to reports, the German neobank in South America is currently undergoing a change of strategy and – like Nubank back then – is starting with a credit card. In Europe, bank customers used to get a debit card. The N26 spokeswoman declined to comment.

Vélez looks calmly at the new competition: “I don’t know what added value a foreign player could offer since he’s practically starting from scratch”. After all, the newcomers are not only dealing with neobanks like Nubank, which has been focusing on the Brazilian market for nine years, but also with numerous traditional banks that have invested billions over the years in order to win this business for themselves. “It will be a difficult market in terms of competition,” predicts Vélez.

Berlin as a tech hub

Conversely, Nubank has already made its way to Berlin – albeit not in the banking business. According to Vélez, the Brazilians would have “no chance” given the large and well-positioned competition if they started in Europe or Germany.

However, the Latin American fintech operates a tech hub in the German capital with currently 40 employees. “Many of our employees wanted to move from Brazil to Berlin,” reports Vélez. “And we have recognized that there is a lot of talent and good technology companies there.” Nevertheless, the team in the German capital is only growing “very slowly”. The CEO justifies this with the very thorough selection of talent.

Despite the difficult market environment and the drastic fall in the share price, Vélez Nubank sees itself well positioned in the future: “We have only experienced bad times in Brazil: a significant decline in gross domestic product and the worst recession in 100 years.” There were also political scandals, corruption and the Pandemic: “High inflation, high interest rates and slightly slower economic growth this year is better for me than the last eight years that we have experienced as a company,” says Vélez.

Nubank is reluctant to make forecasts for the current year. As far as the long-term prospects are concerned, the neobank remains bullish, said Vélez when presenting the quarterly figures in May this year. Specifically, the institute expects the gross margin to increase significantly in the coming months.

In the first quarter, this had fallen to 34 percent, after 47 percent in the same quarter of the previous year. This was mainly due to rising interest expenses. The Brazilian central bank has massively raised the key interest rate in the past few months in the fight against inflation. The margin is expected to approach the 60 percent mark in the future.

More: Nubank valued at $41 billion when it debuted in the US.